The Age of Hyper-Uncertainty

The year 2017 will mark the 40th anniversary of the publication of John Kenneth Galbraith’s The Age of Uncertainty. But if Galbraith were writing the same book in 2017, he probably would call the 1970s the Age of Assurance.

BERLIN – The year 2017 will mark the 40th anniversary of the publication of John Kenneth Galbraith’s The Age of Uncertainty. Forty years is a long time, but it is worth looking back and reminding ourselves of how much Galbraith and his readers had to be uncertain about.

In 1977, as Galbraith was writing, the world was still reeling from the effects of the first OPEC oil-price shock and wondering whether another one was in the pipeline (as it were). The United States was confronting slowing growth and accelerating inflation, or stagflation, a novel problem that raised questions about policymakers’ competence and the adequacy of their economic models. Meanwhile, efforts to rebuild the Bretton Woods international monetary system had collapsed, casting a shadow over prospects for international trade and global economic growth.

For all these reasons, the golden age of stability and predictability that was the third quarter of the twentieth century seemed to have abruptly drawn to a close, to be succeeded by a period of greatly heightened uncertainty.

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Months after the referendum that shook the world, the fallout from Brexit, including the likely economic costs, remains unsettled. Theresa May's government is still wrestling with the basic question of what type of relationship with the EU Britain wants, while European leaders are struggling to develop a united front for negotiations.

The collapse of Bretton-Woods was an indicator that the post-1945 order required a fundamental reconsideration by the major stakeholders, including the United States as the cornerstone of that system. In 2017, the United States faces the reality that it s role in the international system has been diminished by poor domestic governance and the legacies of its military misadventures in the Middle East. The greatest uncertainty is whether the emerging Republican leadership has either the credibility or the competence to navigate a rapidly shifting international context in which American policies are increasingly open to question..

When the SDR facility in the 1970s could not get enough traction as a building block for an effective international monetary system, the monetary situation in the early decade of the 21st century has even less efforts for such system after some four decades.

One way to transform the unjust, unsustainable and, therefore, unstable international monetary system is to start using it in dealing with this century’s biggest challenge, i.e. avoiding the looming climate catastrophe. This can be done after much thought and negotiation by adopting a monetary standard such as a specific tonnage of CO2e per person. The conceptual, institutional, ethical and strategic dimensions of such carbon-based international monetary system are presented in Verhagen 2012 "The Tierra Solution: Resolving the climate crisis through monetary transformation" and updated at www.timun.net. Climate specialist Bill McKibben wrote on May 17, 2011 the following about this proposed system: “The further into the global warming area we go, the more physics and politics narrows our possible paths of action. Here’s a very cogent and well-argued account of one of the remaining possibilities.”

Uncertainty is the mismatch between your inability to control events and your desire to control them.
Hyper-uncertainty means either your inability to control events is breaking world records, either your desire has been over-viagra-powered.
If 1929 and 2008 crises both gifted us with one big lesson, is that all this shall pass too.
But if history is any guide, there is a 100% certainty that overtime, all fiat monetary systems collapse in full.

Bretton Woods did not collapse in the 1970's. When Nixon closed the gold window, it just detached the anchor (gold) from the paper currency. For the rest, Bretton Woods kept going. And there were no efforts whatsoever in rebuilding Bretton Woods.

By demonetizing gold in the 1970's, Nixon shouted loud and clear (and no one listened) that providing enough nominal currency to pay for big unfunded liabilities (wars, welfare state, etc...) was not possible under a gold standard system. A certainty that nobody looked at.
Certainly, it's always the same story. The uncertainty is that we never know the timing of the fat lady singer performance.

In reference to John Kenneth Galbraith’s book - The Age of Uncertainty - which was published in 1977 Barry Eichengreen seeks to compare the world then and the "age of hyper uncertainty" we face today.
Galbraith was by far the most famous economic thinker of his day. Populist and media-friendly, he used television to explain and defend his liberal ideas. "Only the community," he once said, "reflects the wellbeing, maybe even the survival, of all people." Such thoughts ebb and flow in political theory and strike a chord in recent years with leaders like Bernie Sanders and Jeremy Corbyn.
The author says "The Age of Uncertainty was about much more than the year 1977," when Jimmy Carter took office, "it captured the tenor of the times." Looking back, the one-term president could still infuse more comfort than Trump would, despite high inflation and unemployment in the aftermath of the 1973 oil price shock and the 1979 Iran hostage crisis. He suggests, "if Galbraith were writing the same book in 2017, he probably would call the 1970s The Age of Assurance."
Carter may "not go down in history as one of the best US presidents" due to a series of indignities he suffered. But the once derided president had rehabilitated his reputation and secured the Nobel Peace Prize in 2002 with his success in mediating in international conflicts. The author fears what Trump said during his campaign would put "the entire global system at risk," abandoning America's allies, unending its "international commitments such as NATO and the World Trade Organization," falling out with the Federal Reserve and starting a trade war with China and other trading partners etc.
Another indication for Eichengreen's "hyper uncertainty" is the EU. Unlike its forerunner in the 1970s, whose "prospects for European integration were rosy," attracting constantly new members, the EU today is grappling with its biggest change in its entire history - a pontential disintegration, following the Brexit and a possible electoral victory for anti-EU populist parties in France, Germany and the Netherlands. The Brexit negotiations woud "cast a dark cloud of uncertainty" over the bloc, which struggles with sluggish growth, and faces a security threat from Russia and an influx of refugees from the Middle East.
Another factor that didn't play a role in the 1970s is the interdependence and the internet connectivity. Their absence then made some global crises more manageable. Today what happens to emerging economies in Latin America and East Asia will "have first-order implications for the world economy," as they "have accounted for the majority of global growth in recent years."
The author advises Trump to get real with his "America First" agenda, as it might not work for his working-class supporters. He might learn that an increase in public spending on projects like the renewal of infrastructure, while cutting taxes for the super-rich would only take a toll on America's coffers. Carter's successor Reagan left vast debts behind as a result of his Reaganomics that Trump seeks to emulate. In foreign affairs Trump will need competent people to take care of America's interests abroad.﻿

So? The current "world order" has created winners and losers. The winners are frightened that they will lose their privileged position, largely created by policy decisions made by the key economic powers. The losers hope for policy changes that will enable them to recover their positions. "Certainty' requires sufficient happiness with the current outcomes and policy sclerosis.

Trump is not the bull in the China shop. China's economic problems are self-generated, and the export surplus to the US has enabled them to evade trying to solve them. The EU - really the German sun and its satellites have pursued a self-defeating policy of economic stagnation based on the false promises of fiscal austerity. Are these the sort of examples of "stability" that is desired? Really?

Good article. But why are markets celebrating the uncertainty? Tunnel vision? Collective amnesia? Or are they simply betting om a rerun of the Bush boom and Bernanke rescue following a crash? Policy-makers are more sensitive to the moral hazard inherent in a banking system ultimately underwritten by the USG's powers of seigniorage, but have done little to open channels for monetary support that bypass banks and asset markets. In 1977, we could rely on Paul Volcker's backbone, but now, with the scale of government debt and the level of asset prices, the FED really needs to open new channels through which to deliver liquidity to the economy, as it unwinds its position in bond markets. That is what generated all the talk about "helicopter money," but nothing more radical is needed than the capacity to lend directly to taxpayers through the IRS withholding system. That would give the FED a quasi-fiscal role, but so what? It is already playing a quasi-fiscal role in subsidizing asset prices (and property owners) through its bond purchases. Lending through IRS channels would just spread those subsidies more broadly while distorting the US economy far less.

In short, Eichengreen is right to be concerned. We are not going to be able to handle the storm that is now brewing by doing more or less of what we now do. Nor is any stronger leader, like Volcker, likely to make any real difference. Institutional change in the powers of the FED and its mode of action is needed if we are to avoid a continuing cycle of booms and crashes.

BTW I do love the implicit idea that the EU expanding is a definition of progress. At what point does Europe end and the rest of the world begin. Why would anybody want to turn down an application from the country that has the highest number of journalists imprisoned in the world for example

What happens in ..... doesnt stay in .... - indeed but there is no need to actively import it is there

Arh yes the snake, but it did have a bite did it not. In fact it should have been seen as a warning when it talked. History may not repeat but it sure do rhyme

The 70s, a golden age, who are you kidding. It is the thinking of the 70s that got us here. 1977 to 2017 is simply 4 decades of job stripping and wage decline in real terms. It is circa 1977 that inequality started to take off on its straight line graph

BREXIT PERHAPS THE ZERO THAT LEADS TO INFINITY
Threatened by Balkanization from Brussels, Britain gallantly chose Brexit.
In the absence of Transfer Union and the resultant Regional Inequities, Unlimited Migration was the only salvation.
The destination always unchanged - The Anglosphere; rather the One Island that enabled over 5 million to escape the Eurozone.
Unwillingness to change, Infallibility of Brussels was not very different from 1534 when the First Brexit happened.
The Fall of Constantinople followed and then The end of The Holy Roman Empire - the template for European Union.
In a replay of history, The Anglosphere remains the Greatest Guarantee of "The Age of Assurance".
The Biggest Bulwark against "The Age of Uncertainty 2017 / 1977 / 1914 / 1814 / et al " is not EU but The Anglosphere.
Brexit and Brexit plus plus is not an accident - Democracy may have provided The Certainty, that was threatened by Brussels.
The Infallibility of Brussels Bureaucracy - has been checkmated.
BREXIT PERHAPS THE ZERO - required once again.
To return to the Road to Infinity - Zero always the Twin of Infinity.

Let the panic begin then. Trump is a common vulgar boor who will do nothing more that demonstrate that a bad situation can be made much worse -- especially for those who have no capital accumulated and must sell their labor to live.

The hysteria about Trump is unbecoming. It looks like he will have the fiscal stimulus that Krugman has begged from the Citigroup administration, but did not get.

It looks like Trump may end 13 years of war that were much worse than Vietnam--which didn't matter except the current 65-year-old supporters of our senseless wars were being drafted and had to pretend that they cared about our killing of Third Worlders--several hundred thousand in Syria alone.

And what a reading of 1977!! Besides the revolution in Iran, it was the time when computerization was beginning the great attack on wages with the major outsourcing and with the immigration of the 1965 law reaching a critical mass.

The result was a supply-demand relationship in labor that featured an infinite supply of labor and a soaring of profits. Galbraith cared about the average American. Those like Eichengreen only care that their Dow stocks went from 750 in 1982 to 20,000 with the kind of exploitation of labor that exceeded that which Marx and Dickens wrote about. Now they are nervous that they produced a revolution. If Trump is not a great President, they will have real reason to panic at the next one.

If times are uncertain in important regards, that indicates need for theoretical explanations. There is value in the ability to predict.
I tried for some rather general theory, a condensed form can be found in my account's biography.

Galbraith's _Age of Uncertainty_ got its answer three years later, when Milton Freedman in 1980 published _Free to Choose. Freedman scoffed at uncertainty and promised perfect certainty if only markets of every sort were allowed to run unchecked across the globe. Thus was neoliberalism born, and the hegemony of the corporatocracy -- and ultimately, the rise of Western demagogues like Donald Trump. Viktor Orbán and the rest of our happy band of neofascists.

Yeas. Add a dash of Greenspan's shameful adoration of Ayn Rand and the ensuing trust in deregulated markets and instruments, and we got the perform storm of irrational policy meeting greed. Trump looks to repeat the same. Last time the world allowed itself to go so mad, it took contemplating gas chambers to sober up from the law-and-order cool-aid. Let's hope we are not in for more of the same.

Curtis, the election is over and one must accept the outcome. You may not like it but Trump shall be the 45th Preside the US.. The Democratic Party machine should have seen thiss outcome coming and should have proposed anothter candidate than HRC. People were given a choice between the Status Quo and Change (no matter how ugly this might turn out) and they decided to vote for change. Regarding my golf comment, Curtis it might seem silly, but a sitting US President does not give any credibility to the high office by playing "mini golf" in the oval office and the mini golf games in the Oval Office were not included in my below figure. Just an observation.

The notion that "change, any change requires real leadership" is nonsense on multiple grounds MM -- which I'm sure you can discover for yourself if you think about it for a minute.

Meanwhile, in a political system of separation of powers that check one another, leadership is not vested in any one agency. The silly comment about how often one plays golf is pretty irrelevant to anything in that regard. Fun to note though that there are several reports that Donald Trump cheats at the game :-)

Curtis, Change any change requires real leadership (or statesmanship) and real diplomacy. Obama had none, over 300 games of golf in his tenure hould equate to nearly a full year if one includes travelling, practicing, etc.. Regarding the challenges of the legislatures, Inthink I did comment on it in one of my other blogs, Incalled them minefields.

Change of any significant sort in the U.S. requires action on the part of the _legislative_ branch of government MM -- something that a great many people (like you, perhaps) seem unable to grasp. The President is the executive charged with enforcing the nation's laws -- not making them. It might be helpful to review articles 1 and 2 of our constitution.

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